American Enterprise Institute authors say Social Security and pensions are a bargain

In a report for the Ohio Business Roundtable, AEI’s Andrew Biggs and Jason Richwine estimate the cost to private-sector employers of Social Security and traditional pensions at just 2 percent of wages. This will come as a surprise to employers used to paying roughly three times as much for this coverage, as well as anyone who’s followed Biggs’ work over the years and knows he’s no fan of either Social Security or defined benefit pensions.

But this time, Biggs isn’t promoting Social Security privatization or 401(k)s. Instead, he and Richwine are trying to make the case that government workers in Ohio are paid a whopping 43 percent more than workers in the private sector, attempting to counter an EPI study that found government workers were, if anything, slightly underpaid. To do this, Biggs and Richwine systematically low-ball the pay of private-sector workers and inflate that of teachers and other state and local government workers in Ohio, who aren’t covered by Social Security.

So how do Biggs and Richwine arrive at a 43 percent pay premium for government workers in Ohio? As Keefe and Amy Hanauer of Policy Matters Ohio explain, Biggs and Richwine selectively alternate between the actual cost to employers of providing fringe benefits and their supposed value to employees. So, for example, they magnify the cost of public-sector retiree health benefits by using the cost of purchasing insurance on the individual market, but they don’t do the same for life insurance provided by Social Security. According to Keefe, they also double count the cost of retiree health insurance by ignoring the fact that it’s paid for through pension contributions in the public sector, while falsely assuming that no private-sector workers receive these benefits.

Biggs and Richwine also claim that job security should be valued at 9 percent of earnings for government workers–12 percent once their supposedly higher pay is factored in–even though the evidence that state and local government workers actually have more job security is weak. Last but not least, Biggs and Richwine more than triple the cost of public pensions by projecting a very low rate of return on public pension fund assets, a favorite theme of Biggs.

Follow EPI

Sign up to stay informed

Track us on Twitter

Economic Policy Institute

EPI is an independent, nonprofit think tank that researches the impact of economic trends and policies on working people in the United States. EPI’s research helps policymakers, opinion leaders, advocates, journalists, and the public understand the bread-and-butter issues affecting ordinary Americans.